EE#7 Hydrogen - just full of hot air?

The NIC don’t hate hydrogen - far from it

Green hydrogen is the marmite of net zero. Political parties, unions and incumbent industries love it, challenger industries, campaign groups and tech realists don’t. But much like the rest of the world looks at the great British Marmite, investors and policy people just aren’t quite sure what it is or what it should be used for. 

This week much of the press put the UK government’s advisors on infrastructure, the NIC, onto the list of haters - after they said government should rule hydrogen out for home heating. What they were actually saying was that hydrogen is really important to discrete sectors, and that the numbers don’t stack up to use in boilers too. To extend our analogy one step too far - Marmite has no place on ice cream, its much better on toast (or in pasta). The NIC is attempting to bring clarity to hydrogen’s role in net zero, something government has struggled to do.

This week - what is the UK actually going to use hydrogen for, and how can policy make that happen?

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Taste the rainbow

• Green Hydrogen: produced using electrolysis powered by renewable energy

• Pink hydrogen: the same but with nuclear nuclear

• Blue hydrogen: uses fossil fuels where the carbon is captured

• Grey hydrogen: unabated fossil fuels.

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Green Hydrogen is on a rapid trajectory. Globally there is 270MW of green hydrogen in operation currently, yet 957GW of new production is in the pipeline - nearly all of which is stuck in the early stages of planning (and only 202GW is expected by 2030). Still that’s a near 800 fold increase in seven years.

The UK is and will be a tiny proportion of this. We have 1.5GW of electrolyser capacity (the things that drive electrolysis) in the pipeline, up from 4.2MW currently. That is a long way from government’s 10GW target by 2030. Progress in the UK is difficult - our industrial energy prices have been on average over 30% higher than the IEA average. While last year Ceres who make electrolysers cancelled plans as they were unable to get an early enough grid connection.

As we often see public investment in the UK is also behind. Our 2021 £1bn of investment is ⅔ of Spain’s, ⅙ of Japan’s, and a tenth of Germany’s. Since then competition has only increased. 

• The US looks likely to win any global hydrogen race. Biden just announced $7bn for seven hydrogen hubs across the country. This is the latest step in a series of funding initiatives that offer both a tax credit through the Inflation Reduction Act, and a direct cash injection through the Infrastructure and Jobs Act. This hopes to boost production to 50 million tonnes by 2050, and also to reduce the price of green hydrogen to $1 per kg in one decade. 

• The EU, close behind and home to a strong chemicals industry is planning to launch a CfD style funding scheme, where a new European Hydrogen Bank will agree a production price for green hydrogen via auction, and pay the difference with the real world (or likely current grey hydrogen) price. This is accompanied by a target of 10m tonnes production per year (and the same imported). 

• Elsewhere Canada is offering a tax credit, Germany who doubled their green H2 capacity this year from 20 to 40MW is subsidising green H2 imports, Norway has a CfD, Australia multiple green H2 hubs, and China (the largest grey hydrogen producer and consumer globally) in theory is ready to realise 100GW of green hydrogen.  

Part of the reason behind these huge targets, and the acceleration of capital behind them, is that many in industry have pushed hydrogen as a swiss-army knife of decarbonisation - able to replace any fuel in any setting. While this is true partly true it doesn’t acknowledge either cost or volume. 

Green Hydrogen is a finite resource. There is only so fast you can build new capacity. Meanwhile international competition for capital will mean its particularly constrained in certain countries - we’re yet to work out how to transport it safely, or indeed if that will ever be possible. As Michael Liebrich has set out that means we need to be clear about where green hydrogen will help, and where its too costly to think about. 

There is already an existing market for hydrogen, albeit grey. Currently the world uses nearly 100m tonnes of the stuff to produce a wide variety of chemicals, ammonia and fertilisers and in oil refining.

Lost in the hydrogen is/n’t the future debate is that current hydrogen will need replacing with green before we can talk about any additional uses. Hydrogen’s future is not the problem its the presnet.

High-gas prices have made this an even more urgent priority - the UK is losing its only ammonia-nitrogen plant because of the cost of industrial energy - something other European states are also concerned about. Loss of ammonia production is bad for food security and could lead to increased food prices. 

This is where the numbers start to get scary. Assuming demand for hydrogen in these uses stays flat, we could need up to 1000GW of electrolyser capacity just to replace current grey hydrogen. This might fall a little as some hydrogen is used in oil refining. 

1000GW of electrolysers requires 2-3000GW of renewable energy to power them. That’s not far off the total amount of renewable energy currently produced globally. There seems little point in getting into debates about all the other uses when just to stand still we have to do so much. I think though the UK also needs to at least start thinking about hydrogen’s role in two of those other unavoidable areas identified by Michael. 

Heavy industry

Electrifcation is going to be the predominant form of decarbonisation in many industries, including steel. However, there are some cases or particular types of steel production that may still require the high temperatures offered by hydrogen. A complicating factor is the absolutely mammoth amount of energy and electrolyser capacity required to use hydrogen in steel. As the NIC point out, a lack of clarity on which technology is planned in the UK is making it hard to plan the associated infrastructure like electricity or hydrogen networks.

Energy Storage

The NIC stress the importance of hydrogen for times when renewable generation is low. One way to do this is to use excess generation when prices are low, to produce hydrogen, which you can then convert back when there’s a shortfall. However, there are problems with this - the infrastructure is expensive, especially when the price of batteries is falling rapidly, and when each conversion brings waste. Still, this at least seems like a far better use of money than constraint payments. Here hydrogen is in competition with carbon capture and storage, though practicalities mean we’re probably going to need a bit of both. 

The main reason you need to start thinking now is the planning required for storage. While in theory the UK has bountiful space, the usual suspects of net zero delay - planning and building - mean it’s unlikely to be usable before 2030. In the near-term more batteries, and greater flexibility (reducing peak demand), is a better bet than hydrogen. 

Where do we go from here

We have a hydrogen strategy. This is a kind interpretation of the word strategy, because the document keeps the door open to all uses of hydrogen. I worry that this will both misdirect investment and cloud focus on the most immediate problem - grey hydrogen. 

To tackle this I think government unfortunately needs to go back to first principles. Given it’s inefficient, requires a huge amount of electricity and is energy intensive we need to prioritise, especially where public money is involved. 

• Use cases can grow over time but not until we have a roadmpa to replace existing grey hydrogen

• Subsidy for hydrogen shouldn’t create artificial competition with electrification which is more efficient and usually cheaper. 

• Green hydrogen should drive additional power generation, not be a drain on existing clean power. Except in times of surplus if we’re using existing renewable generation then that will only stimulate more demand for fossil fuels elsewhere in the system. 

• Where hydrogen could help with energy storage we need to ensure this is not increasing the price of energy more generally i.e. only in surplus, but also not allowing it to set the marginal price as gas does currently.

• Always co-locate hydrogen supply with demand to avoid losses when it’s transported.

This is similar to the eligibility criteria for the US green hydrogen tax credit (though that doesn’t look at demand), which is designed to stop emissions rising.